BILL ANALYSIS Ó
SENATE COMMITTEE ON GOVERNANCE AND FINANCE
Senator Robert M. Hertzberg, Chair
2015 - 2016 Regular
------------------------------------------------------------------
|Bill No: |SB 890 |Hearing |4/27/16 |
| | |Date: | |
|----------+---------------------------------+-----------+---------|
|Author: |Gaines |Tax Levy: |Yes |
|----------+---------------------------------+-----------+---------|
|Version: |4/5/16 |Fiscal: |Yes |
------------------------------------------------------------------
-----------------------------------------------------------------
|Consultant|Grinnell |
|: | |
-----------------------------------------------------------------
Sales and use taxes: no-tax weekends: firearms, ammunition,
and hunting supplies
Enacts a "sales and use tax holiday" for firearms, ammunition,
and hunting supplies for two two-day periods.
Background
State law imposes the sales tax on every retailer engaged in
business in this state that sells tangible personal property,
and requires them to collect the appropriate tax from the
purchase and remit the amount to the Board of Equalization
(BOE). Sales tax applies whenever a retail sale is made, which
is basically any sale other than one for resale in the regular
course of business. Unless the person pays the sales tax to the
retailer, he or she is liable for the use tax, which is imposed
on any person consuming tangible personal property in the state.
The use tax rate is the same rate as the sales tax rate, and
must be remitted on or before the last day of the month
following the quarterly period in which the person made the
purchase. The current rate is 7.50%, but beginning January 1,
2017, the sales and use tax rate decreases to 7.25% (Proposition
30, 2012. The rate breakdown is detailed below). Additionally,
cities and counties may increase the sales and use tax rate up
to 2% for either specific or general purposes pursuant to the
California Constitution's vote requirements.
SB 890 (Gaines) 4/5/16 PageB
of?
-------------------------------------------------------------
| | | |
| Rate | Jurisdiction | Purpose/Authority |
| | | |
|-------+--------------------+--------------------------------|
| | | |
|3.9375%|State (General |State general purposes |
| |Fund) | |
| | | |
|-------+--------------------+--------------------------------|
| | | |
|1.0625%|Local Revenue Fund |Realignment of local public |
| |2011 |safety services |
| | | |
| | | |
| | | |
|-------+--------------------+--------------------------------|
| | | |
| 0.50% |State (Local |Local governments to fund |
| |Revenue Fund) |health and welfare programs |
| | | |
|-------+--------------------+--------------------------------|
| | | |
| 0.50% |State (Local Public |Local governments to fund |
| |Safety Fund) |public safety services |
| | | |
|-------+--------------------+--------------------------------|
| | | |
| 1.25% |Local (City/County) |City and county general |
| | |operations. |
| | | |
| |1.00% City and | |
| |County | |
| | | |
| |0.25% County | |
| | |Dedicated to county |
| | |transportation purposes |
| | | |
|-------+--------------------+--------------------------------|
| | | |
| 7.25% |Total Statewide | |
| |Rate | |
SB 890 (Gaines) 4/5/16 PageC
of?
| | | |
-------------------------------------------------------------
Many items are fully exempted from the sales and use tax in this
state (prescription drugs, food, poultry litter), while others
are exempted from the state sales tax, but not the local share,
such as farm equipment and machinery, diesel fuel used for
farming and food processing, teleproduction and postproduction
equipment, timber harvesting equipment and machinery, and
racehorse breeding stock.
Proposed Law
Senate Bill 890 enacts a sales and use tax exemption from the
state share (3.9375%), but not the local, for firearms,
ammunition, and hunting supplies, purchased during two two-day
periods, set as:
From 12:01 am on the first Saturday in September and
ending on midnight the next day.
From 12:01 am on the first Saturday in October, and
ending on midnight the next day.
To claim the exemption, a purchaser must present a copy of his
or her valid hunting license issued under specified provisions
of the Fish and Game Code.
The measure defines its terms, including:
"Firearm" as a shotgun, rifle, pistol, revolver, or
other handgun that may be legally sold or purchased in the
state.
"Ammunition" means that ammunition designed and intended
to be fired from a firearm.
"Hunting supplies" include:
o Archery items,
o Off-road vehicles including all-terrain
SB 890 (Gaines) 4/5/16 PageD
of?
vehicles designed and intended primarily for hunting,
but not golf carts, go-carts, dirt bikes, mini-bikes,
motorcycles, tractors, motor vehicles that may be
legally driven on California's streets and highways,
or heavy equipment, as defined,
o Vessels designed and intended for hunting such
as airboats and pirogues,
o Accessories designed and intended for hunting,
o Animal feed manufactured and marketed for
consumption by game that can be legally hunted, but
not pet food,
o Apparel, such as safety gear, camouflage
coating, jackets, hats, gloves, mittens, face masks,
and thermal underwear manufactured and marketed as
being primarily for wear or use while hunting,
o Hunting shoes or boots designed and intended
for hunting,
o Bags designed and intended to carry game or
hunting gear,
o Float tubes if purchased to be used in
hunting,
o Binoculars if purchased to be used in hunting,
o Tools manufactured and marketed as primarily
for use in hunting,
o Firearm and archery accessories and cases,
o Range Finders,
o Knives manufactured and marketed as primarily
for use in hunting, but not knives purchased for
household, business, or other recreational uses,
o Decoys, tree stands, and blinds,
SB 890 (Gaines) 4/5/16 PageE
of?
o Chairs to be used for hunting, but not ones
used for household, business, or other recreational
uses,
o Optics such as rifle scopes and impact
resistant glasses for shooting,
o Hearing protection gear and enhancements,
o Holsters, belts that are primarily used in
hunting, and slings, and
o Other miscellaneous hunting gear manufactured
and marketed as primarily for use in hunting, but not
toy guns, vessels, and off-road vehicles utilized as
children's toys.
As a tax levy, the measure would take effect immediately.
State Revenue Impact
According to BOE, SB 890 results in revenue losses of $363,000
annually.
Comments
1. Purpose of the bill . According to the author, "Hunting has a
rich and meaningful history in California. Hunting trips provide
opportunities for relaxation, quality time with friends, family
bonding, and respect for the outdoors for many of California's
citizens. Additionally, for many rural parts of our state,
hunting season creates essential revenue for otherwise often
financially depressed areas. Senate Bill 890 would encourage
our citizens to enjoy the beauty that California is
internationally known for and increase tourism in areas which
desperately need an economic boost to recover from the recent
recession. This tax-free weekend would be a boon to sporting
goods stores, outfitters, as well as the hotels, gas stations,
restaurants and myriad other businesses which benefit from the
hunting economy. In addition, by exempting sales and use tax
preceding the start of two popular hunting seasons, Senate Bill
890 would encourage annual hunters to purchase more while
SB 890 (Gaines) 4/5/16 PageF
of?
drawing new hunters to the activity, creating new tourists and
new state revenue from hunting licenses."
2. Will it work ? Tax benefits directed at specific products do
two things: First, they reward behavior that would have
occurred without the subsidy, so-called "deadweight loss." Some
taxpayers will buy guns, ammunition, and hunting supplies for
hunting season without any incentive, so the bill will give
these taxpayers a windfall benefit equal to the sales tax not
paid, providing no marginal benefit. Second, the bill may alter
consumer decisions at the margin; the incentive of not paying
sales tax may spur a taxpayer to purchase more of these items
than they otherwise would have, triggering increased
consumption, and sales for the retailer. A successful tax
incentive causes more economic activity at the margin than its
deadweight loss, but no tax credit has yet conclusively
demonstrated that its benefits outweigh its costs. Another
possible outcome for this bill is for retailers to raise prices
of firearms, ammunition, and hunting supplies while marketing
the incentive, leaving consumers no better off, which basically
transfers revenue from the state to retailers. The Committee
may wish to consider how much additional economic activity SB
890 will spur versus its deadweight loss, and whether retailers
may increase prices to pocket the difference.
3. One big holiday . Although California has never offered a
sales tax holiday, up to 14 other states do, mostly for clothing
and school supplies. Studies find that taxpayers simply shift
the timing of purchases to take advantage of holidays without an
overall increase in sales, holidays mislead consumers about
savings, and are costly and confusing for retailers.<1> Another
study didn't find any shifting, instead showing increased
consumption, but found that sales tax holidays only benefit
wealthier families.<2> The Committee may wish to consider the
merits of establishing sales tax holidays.
4. Burden on retailers. Sales tax holidays create complexities
for tax code compliance. Specifically, creating a sales tax
---------------------------
<1> "Sales Tax Holidays: Politically Expedient but Poor Tax
Policy" Tax Foundation, July, 2013.
<2> "The Effect of Sales Tax Holidays on Household Consumption
Patterns." Federal Reserve Bank of Chicago, July, 2010.
SB 890 (Gaines) 4/5/16 PageG
of?
exemption that only lasts for two days would place an additional
burden on retailers to program their cash registers to exempt
certain products on certain dates. This may require retailers to
incur costs to accommodate the change; however, increased sales
activity during this period could potentially offset those
costs. Additionally, under current law, when merchandise is
exchanged, the law considers the transaction as two separate
transactions: (1) a rescission of the original sale and (2) a
separate sale of the replacement merchandise. For example, if a
customer purchases a rifle and exchanges it for a pistol, the
transaction is regarded under the law as a separate sale of the
pistol and a rescission of the original sale of the rifle. To
report the correct amount of tax, the retailer may deduct the
sales price of the rifle from taxable sales, and must include
the sales price of the pistol. Under the proposed holiday
period, if the same rifle is purchased during the sales tax
holiday period and exchanged for the pistol after the holiday
period, the proposed exemption would not apply to the exchange;
the law recognizes that transaction as occurring after the
exempt holiday period. This complexity may lead to retailer
reporting errors. Rain checks could also create confusion.
Current law provides that a retailer-issued rain check does not
constitute a sale of tangible personal property. Therefore, the
exemption would not apply when a retailer issues a rain check to
the customer for an out of stock item during the holiday period
and the customer uses the rain check to purchase the item after
the proposed holiday period.
5. New tax expenditure . Enacting a new tax exemption results
in foregone revenue, which requires cuts in spending or higher
taxes, all else equal. Tax credits do not pay for themselves:
the state's last effort of "dynamic revenue analysis" indicates
that while dynamic effects are definitely present and visible,
their effects are generally relatively modest.<3> The
Committee may wish to consider whether the benefits resulting
from this incentive are worth the tradeoff of cuts in spending
or taxes on other activities.
6. Consistent ? California has been one of the nation's leaders
in enacting legislation intended to prevent gun violence,
putting in place many laws that seek to reduce death and injury
---------------------------
<3> "Whatever Happened to Dynamic Revenue Analysis in
California?" John David Vasche, prepared for the Federation of
Tax Administrators, September, 2006.
SB 890 (Gaines) 4/5/16 PageH
of?
that where firearms are involved. According to the 2007 Small
Arms Survey, there are already 88.8 guns per 100 American, and
data from the University of Sydney shows that America's rate of
3.54 firearm homicides per 100,000 people is more than three
times that of any other nation. A recent American Journal of
Medicine study states Americans are 10 times more likely to be
killed with a gun than citizens of any other nation. SB 890's
sales tax holiday seeks to increase firearm and ammunition
purchases in the state by allowing a sales and use tax exemption
during two two-day periods. While the bill requires a purchaser
to show a hunting license to avoid the sales tax, possessing a
license doesn't necessarily mean the gun will be used to hunt.
The Committee may wish to consider the merits of enacting tax
exemptions intended to increase firearm purchases given the
state's efforts to reduce firearm violence.
7. Vague terms . SB 890 allows sales and use tax exemptions for
specified purchases of firearms, ammunition, and hunting
supplies during two two-day periods, and applies to a broad set
of items that can be used in hunting, but could also be used for
many other activities. The measure restricts many of its exempt
items by setting use and intention standards; however, these
restrictions don't apply to all possible exempt items, the terms
vary considerably, and require the purchaser or seller to know
at purchase that an item was designed, manufactured, or marketed
in a specific way, or will be used, or primarily used, for
hunting to be exempt. The bill's standards also vary
considerably. The measure uses all of the following
restrictions: "used for and designed and intended for hunting,"
"designed and intended for hunting," "designed and intended
primarily for hunting," "manufactured and marketed as being
primarily for wear use in hunting," "if purchased to be use in
hunting," "primarily for use in hunting," and "manufactured and
marketed as primarily for use in hunting." Vague and
inconsistent terms could lead to inconsistent application
throughout the state, and disagreements between purchasers,
retailers, and BOE.
Support and
Opposition (4/21/16)
Support : California Rifle and Pistol Association, California
SB 890 (Gaines) 4/5/16 PageI
of?
Sportsman's Lobby, California Waterfowl Association, National
Shooting Sports Foundation, Outdoor Sportsmen's Coalition of
California, Safari Club International, Safari Club International
Foundation.
Opposition : California Tax Reform Association.
-- END --